Redundancy: A Complete UK Guide

Redundancy is a form of dismissal that happens when an employer no longer needs a particular job done — because the business is closing, a workplace is shutting, or the need for that kind of work has reduced. It must be a genuine redundancy, and the employer must follow a fair process: a fair selection, proper consultation, and consideration of alternatives. Employees with two or more years’ service are entitled to statutory redundancy pay, calculated from their age, length of service and weekly pay. From 6 April 2026, a week’s pay is capped at £751 and the maximum statutory redundancy payment is £22,530. Get the process wrong and a redundancy can become an unfair dismissal. This guide explains, for both employers and employees, what counts as redundancy, how the pay is calculated, the fair process required, and the rights and risks on each side.

What redundancy is

Redundancy has a specific legal meaning under section 139 of the Employment Rights Act 1996. It arises in three situations: the employer closes the business entirely, closes the particular workplace, or has a reduced need for employees to do work of a particular kind. If the real reason for a dismissal is not one of these, it is not a genuine redundancy — whatever label the employer uses.

In law, redundancy arises in defined situations: the employer has ceased or intends to cease carrying on the business; the business is closing at the place where the employee works; or the requirements for employees to do work of a particular kind have ceased or diminished, or are expected to. The crucial point is that redundancy is about the role, not the individual’s performance or conduct — those would be different kinds of dismissal handled in different ways. A genuine redundancy must reflect a real reduction in the need for a job; using “redundancy” as a label to remove a particular person, while the work continues, is not a genuine redundancy and exposes the employer to an unfair dismissal claim. Establishing that there is a real redundancy situation is the foundation of everything that follows.

Statutory redundancy pay

Employees with at least two years’ continuous service are entitled to a statutory redundancy payment. It is a legal minimum — some employers pay more under an enhanced contractual or discretionary scheme, but no eligible employee should receive less than the statutory amount. The payment is calculated from three things: the employee’s age, their length of service (capped at 20 years), and their weekly pay (capped at a statutory maximum). From 6 April 2026 the weekly-pay cap is £751, which makes the maximum possible statutory redundancy payment £22,530 (30 weeks at the capped rate). Redundancies before 6 April 2026 use the previous lower cap of £719.

How statutory redundancy pay is calculated

The amount depends on the employee’s age during each year of service, using these multipliers:

You add up the entitlement for each year of service (up to 20 years), using the weekly pay capped at £751 from April 2026. For example, an employee aged 45 with 10 years’ service, all served while aged 41 or over, would receive 10 × 1.5 = 15 weeks’ pay; if their actual weekly pay is above the cap, the £751 figure is used, giving 15 × £751 = £11,265. The Government’s online redundancy calculator works this out automatically, but understanding the formula helps both employers and employees check the figure.

Who qualifies for redundancy pay

To be entitled to statutory redundancy pay, an employee generally needs two years’ continuous service with the employer at the date the employment ends, and must be an employee (not a self-employed contractor). Those with less than two years’ service are not entitled to statutory redundancy pay, though they are still entitled to notice and must still be dismissed fairly and without discrimination. Some employees may have an enhanced redundancy entitlement under their contract or a workplace policy, which can be more generous than the statutory minimum. Employees who unreasonably refuse a genuine offer of suitable alternative employment may lose their right to a redundancy payment. Checking eligibility — service length, employment status and any enhanced scheme — is the starting point for working out what is due.

The fair redundancy process

A redundancy dismissal is only fair if the employer follows a proper process. The essential steps are: identify a genuine redundancy situation; define the selection pool of roles at risk; apply fair, objective selection criteria; carry out meaningful consultation with affected employees; consider suitable alternative employment; give the correct notice; and offer a right of appeal against selection. Skipping or rushing any of these steps is the most common reason redundancies are found unfair. The process is not a formality — consultation in particular must be genuine, taking place while decisions can still be influenced, not after they are made. A fair, well-documented process protects the employer and treats employees properly; a rushed one invites claims.

Fair selection criteria

Selection must be objective and consistently applied. In Williams v Compair Maxam Ltd [1982] ICR 156 the Employment Appeal Tribunal set out the principles of a fair redundancy: adequate warning, consultation, selection against objective criteria rather than personal opinion, fair application of those criteria, and a search for suitable alternative employment. Criteria that are subjective, or that penalise protected absences such as maternity or disability-related leave, are a common route to an unfair dismissal finding.

Where some but not all employees in a pool are to be made redundant, the employer must select fairly using objective criteria that can be evidenced — such as skills, qualifications, experience, performance records and disciplinary history. Criteria must not be discriminatory: selecting on the basis of age, sex, race, disability, pregnancy or other protected characteristics is unlawful, and even apparently neutral criteria (like absence records that include disability- or pregnancy-related absence) can be discriminatory if applied without care. Using subjective, unevidenced judgements, or criteria designed to target a particular individual, makes a selection unfair. The safest approach is a transparent scoring matrix applied consistently across the pool, with the scores capable of being justified if challenged.

Consultation: individual and collective

Where an employer proposes 20 or more redundancies at one establishment within any 90-day period, section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 requires collective consultation with appropriate representatives. Consultation must begin at least 30 days before the first dismissal, or 45 days for 100 or more redundancies. Getting this wrong is expensive: a failure can lead to a protective award of up to 90 days’ gross pay for each affected employee.

Consultation is central to a fair redundancy. Individual consultation with each affected employee should cover why their role is at risk, the selection criteria and their score, possible alternatives, and their views — and it must be genuine, with the employer keeping an open mind. Where larger numbers are involved, collective consultation obligations apply: if an employer proposes to make 20 or more employees redundant within a 90-day period, it must consult appropriate representatives (a recognised union or elected representatives) for a minimum period — at least 30 days before the first dismissal for 20–99 redundancies, and at least 45 days for 100 or more — and notify the Government. Failure to consult collectively can lead to a “protective award” of up to 90 days’ pay per affected employee, and recent reform has been strengthening these protections, so getting collective consultation right is increasingly important.

Suitable alternative employment and trial periods

Before confirming a redundancy, the employer must consider whether there is suitable alternative employment for the employee, either with itself or an associated employer. If a suitable role is available, it should be offered. Where an alternative role is offered, the employee is generally entitled to a four-week statutory trial period to see if it works out, without losing their redundancy rights if it does not prove suitable. If an employee unreasonably refuses an offer of genuinely suitable alternative employment, they can lose their statutory redundancy payment — but “suitable” is judged objectively (pay, status, location, hours), and a reasonable refusal does not forfeit the payment. Pregnant employees and those on or returning from maternity, adoption or shared parental leave now have enhanced protection, with priority for suitable alternative roles. Properly exploring alternatives is both a legal requirement and often a better outcome than dismissal.

Notice and pay on redundancy

A redundant employee is entitled to their notice period — the greater of their contractual notice and the statutory minimum, which is one week per complete year of service up to a maximum of 12 weeks. During notice they are paid as normal (or receive pay in lieu if the contract allows), and the statutory redundancy payment is due on top of notice pay. The employee should also be paid any outstanding wages, accrued but untaken holiday, and any contractual entitlements. It is important not to confuse the redundancy payment with notice pay — they are separate, and an employee is entitled to both. Getting the figures right — redundancy pay, notice, holiday and any enhanced entitlement — and setting them out clearly avoids disputes at the end of employment.

When a redundancy becomes unfair dismissal

A redundancy dismissal can be challenged as unfair dismissal if it is not genuine or not handled properly. Common ways a redundancy becomes unfair include: there was no real redundancy situation; the selection pool or criteria were unfair or discriminatory; consultation was inadequate or a sham; suitable alternative employment was not considered; or the dismissal was really for another reason dressed up as redundancy. An employee who believes their redundancy was unfair can bring a claim in the employment tribunal, generally within three months of the dismissal. Because tribunal litigation is a regulated activity, Hayhills advises on the position and introduces a regulated litigator where a claim is brought or defended. The best protection for employers is a genuine redundancy run through a fair, documented process; the best protection for employees is to understand whether that process was actually followed.

Voluntary redundancy and settlement agreements

Employers often seek volunteers for redundancy before applying compulsory selection, sometimes with an enhanced package, which can reduce the need for compulsory redundancies and improve morale. Separately, redundancies are frequently concluded with a settlement agreement — a legally binding contract under which the employee receives an agreed (often enhanced) payment in return for waiving their employment claims. For a settlement agreement to be valid the employee must take independent legal advice on it, which the employer usually contributes towards. Settlement agreements give both sides certainty and a clean break, and are common in redundancy situations, particularly for more senior roles or where there is any risk of dispute. Understanding whether to offer or accept one — and on what terms — is an important part of managing a redundancy well.

Tax on redundancy pay

Genuine redundancy payments enjoy favourable tax treatment: the first £30,000 of a qualifying termination payment is generally tax-free, and statutory redundancy pay falls within this. Amounts above £30,000 are taxable, and certain elements — such as pay in lieu of notice and accrued holiday pay — are taxable in the normal way and do not benefit from the £30,000 exemption. The tax treatment of termination payments is detailed and has anti-avoidance rules, so for larger packages it is worth taking specific tax advice. For most statutory redundancy payments, which fall well within the £30,000 threshold, the payment is received tax-free — a meaningful benefit for the employee at a difficult time.

Enhanced and contractual redundancy schemes

Statutory redundancy pay is a floor, not a ceiling. Many employers operate enhanced redundancy schemes that pay more than the statutory minimum — for example, by using actual weekly pay rather than the capped figure, by paying more weeks per year of service, or by adding a flat sum. An enhanced scheme may be contractual (set out in the contract or a collective agreement, and therefore legally binding) or discretionary (offered case by case). The distinction matters: a contractual enhanced scheme must be honoured, whereas a discretionary one can be varied, though established custom and consistent past practice can sometimes harden a discretionary scheme into an expectation. Employees should check their contract, staff handbook and any collective agreement for an enhanced entitlement before assuming the statutory figure is all they are due. Employers designing or applying an enhanced scheme should be clear about whether it is contractual, and apply it consistently to avoid discrimination claims.

Redundancy and family leave: enhanced protection

Employees who are pregnant or on or returning from family leave have special protection in a redundancy. Recent reform extended this: the protected period now runs from when an employee tells their employer they are pregnant, through their maternity leave, and for a period after they return, with equivalent protection for adoption and shared parental leave. During the protected period, if a suitable alternative vacancy exists, these employees have a priority right to be offered it ahead of other redundant colleagues. Selecting a pregnant employee or someone on maternity leave for redundancy because of their pregnancy or leave is automatically unfair and discriminatory. Employers must therefore handle redundancies involving pregnancy or family leave with particular care, and affected employees should be aware that they have stronger protection than colleagues. Getting this wrong is one of the most common and costly redundancy errors.

Redundancy and the 2025 employment reforms

The Employment Rights Act 2025, which received Royal Assent on 18 December 2025, strengthens the collective redundancy regime — including a higher cap on the protective award for breaches of the consultation duty — with changes being phased in from 2026. Employers planning larger restructurings should check the latest position before fixing a consultation timetable.

Employment law is in a period of significant change, and redundancy is affected. The Employment Rights Act 2025 forms part of a wider strengthening of workers’ rights, and the direction of travel on redundancy includes tougher collective consultation rules and stronger penalties for employers who fail to consult properly — making the collective consultation obligations for larger redundancies even more important to get right. Many of the detailed changes are being introduced through secondary legislation over 2026 and beyond, so the precise rules continue to evolve. The practical message for employers is that the trend is towards more protection for employees in a redundancy, not less, so a careful, well-documented and genuinely consultative process is more important than ever. Employees, in turn, have an increasingly strong framework of protection. Anyone managing or facing a redundancy now should check the current position, as the rules are moving.

If you are facing redundancy: a checklist

If your role is at risk, work through these steps:

• Check it is a genuine redundancy — is the job really going, or is something else happening.
• Check your service — two years or more means statutory redundancy pay.
• Work out your statutory pay using age, service and the £751 weekly cap.
• Check for an enhanced scheme in your contract, handbook or collective agreement.
• Engage with consultation — ask about the selection criteria and your score, and suggest alternatives.
• Check notice, holiday and outstanding pay are all included and correct.
• Consider any settlement agreement carefully and take independent advice before signing.
• Note the three-month deadline if you think the process was unfair or discriminatory.

Understanding your rights early puts you in a far stronger position, whether you accept the redundancy or challenge it.

What we see in practice

In our advisory work, most redundancy claims succeed not because the business case was wrong but because the process was thin. The most common pattern we see is selection scored after the decision to dismiss has effectively been made, or criteria applied by a single manager with no evidence behind the scores. We also see employers overlook the collective consultation thresholds when redundancies across sites or phases are added together, and miss suitable alternative roles that existed elsewhere in the group. A genuine, documented consultation that starts early and treats the outcome as open is the single biggest protection against a successful claim.

Common mistakes to avoid

• Employers: no genuine redundancy. Using redundancy to remove a person while the work continues is unfair.
• Employers: rushing consultation. Consultation must be genuine and before decisions are final.
• Employers: unfair or discriminatory selection. Use objective, evidenced, non-discriminatory criteria.
• Employers: ignoring collective consultation. 20+ redundancies trigger strict obligations and protective awards.
• Employees: assuming any payout is right. Check the redundancy calculation, notice and holiday separately.
• Employees: missing the tribunal deadline. Claims are generally due within three months of dismissal.

Worked example: a redundancy payment

Priya, aged 50, is made redundant in May 2026 after 12 years’ continuous service. She was aged 41 or over throughout those 12 years, so each year counts as 1.5 weeks’ pay: 12 × 1.5 = 18 weeks. Her actual weekly pay is £900, above the April 2026 cap of £751, so the capped figure is used: 18 × £751 = £13,518 statutory redundancy pay, received tax-free. On top of that she is entitled to her notice (the greater of contractual and the statutory 12 weeks for 12 years’ service), plus any outstanding wages and accrued holiday. The example shows how age, service and the weekly-pay cap combine — and why the redundancy payment, notice pay and holiday pay are separate amounts that should each be checked.

London employers and employees: a quick note

The redundancy rules are the same across England, Wales and Scotland, but London’s higher salaries make the weekly-pay cap especially significant: many London employees earn well above £751 a week, so their statutory redundancy pay is calculated on the capped figure rather than their actual salary — which is why enhanced contractual schemes and settlement agreements are common for London roles. London’s concentration of larger employers also means collective consultation obligations arise more often. For both employers and employees in London, understanding how the cap, enhanced schemes and settlement agreements interact is key to a fair and well-managed redundancy.

How Hayhills can help

Advising on redundancy is a commercial and employment matter, not a reserved legal activity, so Hayhills can help you directly. For employers, we help you run a genuine, fair and well-documented redundancy process — selection, consultation, alternatives and settlement agreements — to reduce the risk of unfair dismissal claims. For employees, we help you understand your rights, check your redundancy and notice pay, and advise on any settlement agreement you are offered. Where a matter goes to the employment tribunal, which is a regulated activity, we work alongside and introduce a regulated litigator, and we refer tax questions on larger packages to a specialist. Explore our employment advisory service or speak to Hayhills today.

This article is for general information only and does not constitute legal or accountancy advice. Hayhills Limited, trading as Hayhills Legal Advisory, provides non-reserved legal advisory services. Always check current requirements at GOV.UK.

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